New demat accounts jump to a record high in FY21

Retail investors rushed to the stock markets in a year marked by covid-led uncertainties, which left many jobless or witnessing salary cuts. Data showed that the number of people dabbling in stocks has increased to a record high so far in financial year (FY) 2021.

According to Securities and Exchange Board of India (Sebi) data, new dematerialized or demat account additions rose to an all-time high of 10.7 million between April 2020 and January. This is an increase of more than double the new accounts opened in FY20 at 4.7 million. Around 4 million new accounts were added, each, in FY19 and FY18.

In January 2021 alone, 1.7 million new demat accounts were added, the highest monthly increase since September 2019 when 1.9 million accounts were opened.

As of January, India’s total demat accounts stood at 51.5 million, compared to 40.8 million at the end of FY20 and 35.9 million in FY19.

A demat account is opened by an investor with a depository participant to invest in securities such as stocks and bonds. The securities are held in digital format.

According to Ajay Menon, chief executive, broking and distribution, Motilal Oswal Financial Services, the growth in the number of retail investors and the surge in demat accounts is due to multiple reasons. “The most common reasons have been people having more disposable income as well as free time to trade as most of them were working from home. Markets were volatile and at low points during the start of FY21 because of which first-time investors and millennials have been grabbing the opportunity for short-term gains and an alternative source of income,” he said.

Smooth and easy access to stock markets because of technology, such as e-KYC (electronic-know your customer) and Aadhaar e-signing helped the retail investor community grow, said experts. The robust addition in demat accounts after the lockdown was lifted while offices started and businesses resumed operations indicate stickiness of the retail investor segment.

Discount online brokerage firm Zerodha, which added 0.7 million new accounts in the past two months, saw a consistent rise in accounts since April last year, said Nithin Kamath, founder and chief executive officer, Zerodha.

“With our clients, we see increased participation in direct equity investing compared to mutual funds. While a majority of our new clients are from Pune, Bengaluru, Mumbai and Hyderabad, we do see increased participation from tier-2 cities that contribute to almost 40% of new accounts opened. The average age group of our investors is 20-30 years,” Kamath added.

In FY21, as competing asset classes, such as fixed deposits, bonds and real estate, yielded lower returns compared to stocks, retail investors flocked to trading for a quick buck. In FY21, Sensex and Nifty are poised for best returns in 11 years. Both benchmark indices have risen 72-75% in FY21 so far, while BSE Midcap and BSE Smallcap have surged 96% and 120%, respectively.

Expectations of a faster recovery in the economy and better corporate earnings instilled confidence in investors, tempting them to pour more money into equities.

Data trends show that after the pandemic, younger or millennial investors in India have started opening demat accounts to start trading, in sync with the global trend. Not only that, stock trading has become more gender inclusive with more female participants in the market as traders or investors as opposed to few years ago.

“Another very healthy trend has been the rise of women investors. If we were to compare Jan 2020 to Jan 2021, the number of women who opened an account with Sharekhan in January 2021 was 77% more than the number of accounts opened in Jan 2020. The same parameter when comparing December 2020 and December 2019 stands at 66%. This sort of growth was true across most of 2020-21, which implies that women were major contributors to the market participation growth we saw in 2020,” said Jaideep Arora, CEO, Sharekhan by BNP Paribas.

According to Arora, Sharekhan always had nationwide presence, be it tier-1 cities or tier 2-3 towns but there are definite indicators or trends to this new retail growth.

“Just the top 20 emerging cities (such as Baroda, Visakhapatnam) contribute to 12% of our new online clients (customers who open accounts by themselves with us), which implies that tech savvy customers, who used to be more biased towards tier 1 cities, is fast evolving owing to technology adaptation in tier 2 & 3 towns,” he added.

Sharekhan’s nearly 77% new accounts belong to under the age of 40.

Experts feel that the impact of covid on livelihoods taught people a very important lesson in financial planning and investments, to ensure they are financially secure and as a result more and more retail investors entering the capital markets.

The rise of retail investors in 2020-21 is something that we have seen across the globe, trend-wise, a lot this increase that we see here is a replica of what was also seen in the US, with more and more tech savvy youngsters entering the markets who want to take control of their own finances.